Most of the debt can be traced to loans the company took out before the recession to pay for its $250 million Indiana slots
license, expand Hoosier Park and pursue development of another racino.

The bankruptcy breaks Centaur’s creditors broadly into three groups: first-lien lenders, second-lien lenders and unsecured
creditors. Centaur has reached an agreement in principal with the first-lien group. But the second-lien lenders are not satisfied
with Centaur’s reorganization plan. They’re also skeptical the company has the resources to proceed with its stalled
Valley View Downs racino project outside Pittsburgh.

Late last month, the second-lien lenders filed court papers requesting a conversion of Centaur’s case to Chapter 7.
Centaur’s primary asset at issue is $50 million in cash it set aside as security for its pending Pennsylvania gambling
license. Centaur landed a harness racing license there in 2007, but its application for a slots license from the Pennsylvania
Gaming Control Board has not been approved.

Centaur owes $383 million to the first-lien group, which is made up of dozens of hedge funds; $192 million to the second-lien
group, a similar collection of hedge funds; and $106 million to unsecured creditors. Centaur’s reorganization plan proposes wiping away all its debt by restructuring
itself into a new company, then issuing a combination of $115 million in new debt, warrants and "payment-in-kind, or
PIK, notes.

Warrants would give the first-lien group the right at some point in the future to buy Centaur stock at a predetermined price.
PIK notes are an obscure form of debt that allows the issuer discretion over when to pay interest, with the unpaid portion
added to the principal and compounded until a balloon payment at maturity. Centaur is still in negotiations over exact terms
for the warrants and PIK notes.

Wells Fargo Bank represents the second-lien lenders as agent. In court paperwork, Wells Fargo points out that nearly all
the benefits of Centaur’s reorganization plan would go to the first-lien group, while second-lien lenders would receive
just 2.2 percent of the “deeply subordinated” PIK notes. Wells Fargo argues that general unsecured creditors would
receive no recovery under Centaur’s plan.

Centaur still hopes to build Valley View Downs, which is key to the company’s future growth. But the second-lien group
considers a revival of the Pennsylvania racino project unlikely. Wells Fargo points out that construction of the horse track
casino would require at least $176 million, and calls the development project “wholly speculative.”

“The prudent course of action is to stop the bleeding, conserve assets for the benefit of creditors, and convert the
cases to Chapter 7 rather than maintain the façade of a development opportunity and be forced to subsidize the costs
and expenses of [Centaur’s] operations and Chapter 11 cases,” Wells Fargo wrote in its Chapter 7 conversion request.
“Instead, [Centaur has] chosen to not only drift along in Chapter 11 with no prospect for reorganization, but to also
sacrifice the asset value that would be available for payment of their creditors’ claims.”

Centaur considers Wells Fargo’s Chapter 7 conversion request a negotiating tactic aimed at increasing the second-lien
group’s leverage. In a written statement in response to IBJ’s inquiry, Centaur spokeswoman Susan Kilkenny
pointed out that the second-lien group is junior in the company’s capital structure.

“We are absolutely opposed to this [conversion to Chapter 7] action. We believe there is significant value above the
$50 million securing the gaming license application in Pennsylvania,” Kilkenny wrote. “We remain committed to
that project and building the facility as quickly as possible.”

Kilkenny wrote that Centaur takes issue with assertions its reorganization plan creates high risk for creditors. She reiterated
that Centaur has reached an agreement in principal with its first lien lenders, and called continuing discussions with the
company’s remaining creditors “open and productive.”

“We remain extremely confident that the ultimate plan of reorganization will create as much value as possible for our
stakeholders and position the company for success,” she wrote.

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